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1. What is Cheque Truncation?
Truncation
is the process of stopping the flow of the physical cheque issued by a drawer
at some point with the presenting bank en-route to the drawee bank branch. In
its place an electronic image of the cheque is transmitted to the drawee branch
by the clearing house, along with relevant information like data on the MICR
band, date of presentation, presenting bank, etc. Cheque truncation thus
obviates the need to move the physical instruments across branches, other than
in exceptional circumstances for clearing purposes. This effectively eliminates
the associated cost of movement of the physical cheques, reduces the time
required for their collection and brings elegance to the entire activity of
cheque processing.
2. Why Cheque Truncation in India
As explained
above, Cheque Truncation speeds up the process of collection of cheques
resulting in better service to customers, reduces the scope for
clearing-related frauds or loss of instruments in transit, lowers the cost of
collection of cheques, and removes reconciliation-related and logistics-related
problems, thus benefitting the system as a whole. With the other major products
being offered in the form of RTGS and NEFT, the Reserve Bank has created the
capability to enable inter-bank and customer payments online and in near-real
time. However, as cheques are still the prominent mode of payments in the
country and Reserve Bank of India has decided to focus on improving the
efficiency of the cheque clearing cycle, offering Cheque Truncation System
(CTS) as an alternative. As highlighted earlier, CTS is a more secure system
vis-a-vis the exchange of physical documents.
In
addition to operational efficiency, CTS offers several benefits to banks and
customers, including human resource rationalisation, cost effectiveness,
business process re-engineering, better service, adoption of latest technology,
etc. CTS, thus, has emerged as an important efficiency enhancement initiative
undertaken by Reserve Bank in the Payments Systems area.
3. What is the status
of CTS implementation in the country?
The
Reserve Bank has implemented CTS in the National Capital Region (NCR), New Delhi Coimbatore Union
Territory
4. What is the new approach to CTS implementation in the country?
The
new approach envisioned as part of the national roll-out is the grid-based
approach.
Under
this approach the entire cheque volume in the country cleared across numerous
locations will be consolidated into a much fewer number of grids. The concept
of region wise grids will be replaced and operational freedom will be given to
the operator in deciding the number of grids required to expand the reach of
CTS Pan-India and also on choosing the locations for each grid for optimum use
of the resources.
Each
grid will provide processing and clearing services to all the banks under its
jurisdiction,. Banks, branches and customers based at small / remote locations
falling under the jurisdiction of a grid would be benefitted, irrespective of
whether there exists at present a formal arrangement for cheque clearing or
otherwise.
5. Is it possible to briefly explain the entire process flow in CTS?
Yes.
In CTS, the presenting bank (or its branch) captures the data (on the MICR
band) and the images of a cheque using their Capture System (comprising of a
scanner, core banking or other application) which is internal to them, and have
to meet the specifications and standards prescribed for data and images.
To
ensure security, safety and non-repudiation of data / images, end-to-end Public
Key Infrastructure (PKI) has been implemented in CTS. As part of the
requirement, the collecting bank (presenting bank) sends the data and captured
images duly signed and encrypted to the central processing location (Clearing
House) for onward transmission to the paying bank (destination or drawee bank).
For the purpose of participation the presenting and drawee banks are provided
with an interface / gateway called the Clearing House Interface (CHI) that
enables them to connect and transmit data and images in a secure and safe
manner to the Clearing House (CH).
The
Clearing House processes the data, arrives at the settlement figure and routes
the images and requisite data to the drawee banks. This is called the
presentation clearing. The drawee banks through their CHIs receive the images
and data from the Clearing House for payment processing. The drawee CHIs also
generate the return file for unpaid instruments, if any. The return file / data
sent by the drawee banks are processed by the Clearing House in the return
clearing session in the same way as presentation clearing and return data is
provided to the presenting banks for processing. The clearing cycle is treated
as complete once the presentation clearing and the associated return clearing
sessions are successfully processed. The entire essence of CTS technology lies
in the use of images of cheques (instead of the physical cheques) for payment
processing.
6. What type of cheques can be presented for clearing through CTS?
All
types of cheques can be presented for clearing through CTS. It is no different
from the use of traditional clearing infrastructure for clearing paper cheques.
Cheques presented as part of Speed Clearing are handled in CTS as well (for
more details on Speed Clearing, the related FAQs may be referred to).
Incidentally, given the fact that images of cheques (and not the physical
cheques) alone need to move in CTS, it is possible for the removal of the restriction
of geographical jurisdiction normally associated with the paper cheque
clearing. For reaping this benefit , the concept of Grid-CTS clearing is being
envisaged as part of roll-out of CTS at Chennai. Under the grid clearing,
cheques drawn on centres included in the grid will be cleared as part of local
clearing.
7. Will there be any
change in the process for the customers?
No.
There is no change in the clearing process for customers. Customers continue to
use cheques as at present, except to ensure the use of
image-friendly-coloured-inks while writing the cheques. Of course, such of
those customers, who are used to receiving the paid instruments (like
government departments) would also receive the cheque images. Cheques with
alterations in material fields (explained in detail later) are not allowed to
be processed under the CTS environment.
8. What are the
benefits of CTS to customers of banks?
The
benefits are many. With the introduction of imaging and truncation, the
physical movement of instruments is stopped. The electronic movement of images
of cheques speeds up the process of settlement and can facilitate reduction in
the clearing cycles as well. Moreover, there is no fear of loss of instruments
in transit. Further, limitations of the existing clearing system in terms of
geography or jurisdiction can be removed, thus enabling consolidation and
integration of multiple clearing locations managed by different banks with
varying service levels into a nation-wide standard clearing system with uniform
processes and practices.
CTS
also benefits issuers of cheques. Use of images obviates the need to handle and
move physical cheques at different points. The scope for frauds inherent in
paper instruments is, thus, greatly reduced. The Corporates if needed can be
provided with images of cheques by their bankers for internal requirements,if
any. As only the images move, the time taken for receipt of paid cheques is
reduced which also gives an early opportunity to the issuers of cheques to
detect frauds or alterations, if any, in terms of what (and to whom it) was
issued and what (by whom it) was realised.
CTS
brings elegance to the entire activity of cheque processing and clearing.
Cheque frauds can be greatly reduced with introduction of minimum security
features prescribed under CTS Standards 2010, such as embedded verifiable
features such as bar-codes, encrypted codes, logos, watermarks, holograms,
etc., for early interception of altered / forged instruments. Obviating the
need to move the physical cheques is extremely beneficial in terms of cost and
time savings.
The
benefits from CTS could be summarized as follows –
·
Shorter clearing cycle
·
Superior verification and reconciliation process
·
No geographical restrictions as to jurisdiction
·
Operational efficiency for banks and customers alike
·
Reduction in operational risk and risks associated with
paper clearing
9. If a customer desires to see the physical cheque issued by him for any reason, what are the options available?
Under
CTS the physical cheques are retained at the presenting bank level and do not
move to the paying banks. In case a customer desires, banks can provide images
of cheques duly authenticated. In case, however, a customer desires to see /
get the physical cheque, it would need to be sourced from the presenting bank,
for which a request should be made to his/her bank. An element of cost / charge
may also be involved for the purpose. To meet legal requirements, the
presenting banks which truncate the cheques need to preserve the physical
instruments for a period of 10 years.
10. How would be the uniqueness of a physical cheque be captured and
imparted to the cheque image ?
CTS
in India
Further,
the new cheque standard "CTS-2010" prescribes certain mandatory and
optional security features to be available on cheques, which will also add to
the uniqueness of the images.
11. What are the image specifications in CTS in the Indian context ?
Imaging
of cheques can be based on various technology options. The cheque images can be
Black & White, Gray Scale or Coloured. These have their associated
advantages and disadvantages. Black & White images are light in terms of
image-size, but do not reveal all the subtle features that are there in the
cheques. Coloured images are ideal but increase storage and network bandwidth
requirements. Gray Scale images are mid-way. CTS in India
12. How are the images of cheques taken ?
Images
of cheques are taken using scanners. Scanners also function like photo-copiers
by reflecting the light passed through a narrow passage on to the document.
Tiny sensors measure the reflection from each point along the strip of light.
Reflectance measurements of each dot is called a pixel. Images are classified
as black and white, gray-scale or colour based on how the pixels are converted
into digital values. For getting a gray scale image the pixels are mapped onto
a range of gray shades between black and white. The entire image of the
original document gets mapped as some shade of gray, lighter or darker,
depending on the colour of the source. In the case of black and white images,
such mapping is made only to two colours based on the range of values of
contrasts. A black and white image is also called a binary image.
13. How the image and data transmitted over the network is secured ?
The
security, integrity, non-repudiation and authenticity of the data and image
transmitted from the paying bank to the payee bank are ensured using the Public
Key Infrastructure (PKI). CTS is compliant to the requirements of the IT Act,
2000. It has been made mandatory for the presenting bank to sign the images and
data from the point of origin itself. PKI is used throughout the entire cycle
covering capture system, the presenting bank, the clearing house and the drawee
bank. The PKI standards used are in accordance with the appropriate Indian acts
and notifications of Controller of Certifying Authority (CCA).
14. What is Cheque Standardisation and what does CTS 2010 Standard
mean ?
Standardisation
of cheque forms (leaves) in terms of size, MICR band, quality of paper, etc.,
was one of the key factors that enabled mechanisation of cheque processing.
Over a period of time, banks have added a variety of patterns and design of
cheque forms to aid segmentation, branding, identification, etc., as also
incorporated therein a number of security features to reduce the incidence of
cheque misuse, tampering, alterations, etc. Growing use of multi-city and
payable-at-par cheques for handling of cheques at any branches of a bank,
introduction of Cheque Truncation System (CTS), increasing popularity of Speed
Clearing, etc., were a few aspects that led to prescription of certain minimum
security features in cheques printed, issued and handled by banks and customers
uniformly across the banking industry. A Working Group was set-up by RBI for
examining further standardisation of cheque forms and enhancement of security
features therein. Accordingly, certain benchmarks towards achieving
standardisation of cheques issued by banks across the country have been
prescribed like – quality of paper, watermark, bank’s logo in invisible ink, void
pantograph, etc., and standardisation of field placements on cheques. In
addition, certain desirable features have also been suggested to be implemented
by banks based on their need and risk perception.
The
set of minimum security features would not only ensure uniformity across all
cheque forms issued by banks in the country but also help presenting banks
while scrutinising / recognising cheques of drawee banks in an image-based
processing scenario. The homogeneity in security features is expected to act as
a deterrent against cheque frauds, while the standardisation of field
placements on cheque forms would enable straight-through-processing by use of
optical / image character recognition technology. The benchmark prescriptions
are collectively known as "CTS-2010 standard". Indian Banks
Association (IBA) and National Payments Corporation of India (NPCI) are
co-ordinating with the banks on implementation of the new standard.
Accordingly, the cheques issued are tested and certified by NPCI and only after
such cerification the cheques would be issued to the customers.
All
banks providing cheque facility to their customers, have been advised to issue
only 'CTS-2010' standard cheques not later than April 1, 2012 on priority basis
in northern and southern region which will be part of the northern and southern
CTS grids respectively and across the country by September 30, 2012 through a
time bound action plan.
15. What is the prescription relating to alterations / corrections
on cheque forms?
The
prescription on prohibiting alterations / corrections on cheques has been
introduced to curtail cheque frauds on account of alterations in the various
fields of cheques and to give protection to customers as well as banks. No
changes / corrections can be carried out on the cheques (other than for date
validation purposes, if required). For any change in the payee’s name, courtesy
amount (amount in figures) or legal amount (amount in words), fresh cheque
leaves should be used by customers. This would help banks in identifying and
controlling fraudulent alterations. This prohibition is applicable to cheques
cleared under the image based Cheque Truncation System (CTS) only and is
effective from December 1, 2010. It is not applicable to cheques cleared under
other clearing arrangements for the present.
16. What are the
precautions required to be taken by the banks / customers to avoid frauds?
Banks
/ Customers should use "CTS 2010" cheques which are not only image
friendly but also have more security features. Customers may request/insist
their banks for cheque forms that are compliant with the "CTS 2010"
standard. They should preferably use dark coloured ink while writing cheques
and avoid any alterations / corrections thereon. Preferably, a new cheque leaf
may be used in the event of any alterations / corrections as the cheque may be
cleared through image based clearing system as enumerated in 15 above. Banks
should exercise care while stamping the cheque forms, so that it does not
interfere with the material portions such as date, payee’s name, amount and
signature. The use of rubber stamps, etc, should not overshadow the clear
appearance of these basic features in image. It is necessary to ensure that all
essential elements of a cheque are captured in an image during the scanning
process and banks / customers have to exercise appropriate care in this regard.
17. What are the modes in which banks can participate in CTS?
There
are two modes in which banks may participate in CTS –
a.
Direct membership: Banks may participate as direct member
provided they have a settlement account with the settlement bank and have put
in place necessary infrastructure for participating in CTS.
b.
Indirect / Sub-membership: Banks may become sub-members /
indirect members of the direct members by using the infrastructure and / or
settlement services of the direct members. The settlement for such indirect /
sub-member could be done either directly (if such banks have settlement
accounts with the settlement bank) or through the direct member through whom
they are participating.
18. Is the infrastructure requirement for participating the CTS the
same for all banks ?
The
infrastructure required at the banks’ end for participating in CTS are
dedicated connectivity from the bank’s gateway to the Clearing House,
prescribed hardware and software for the CTS application.
RBI
provides member banks with the CHI (software). Banks need to procure hardware
and other software such as operating system, database and a bouquet of third
party software for the CHI. They also need to procure the application software
for their capture systems.
The
hardware requirement / sizing is based on the volume of cheques processed by
banks. Based on the volume the CHI is categorised into four types and the
hardware requirement is different for each category.
The
bandwidth requirement for each bank is calculated based a number of factors
like the peak inward and outward volume of the bank, average size of an image,
efficiency factor of the network, etc. In addition, future requirements have
been taken into consideration while calculating the bandwidth
requirement.
19. Whether the Cheque Truncation System has legal sanction?
With
amendments in the Sections 6 and 1(4), coupled with the introduction of 81 A to
the Negotiable Instruments Act, 1881, truncation of cheques is now legalized.
20. In case of need for any further clarifications, who can be
approached for guidance ?
For
any further clarifications the Contact Persons are –
The
General Manager, National Clearing Cell, Reserve Bank of India, 7th Floor,
Tower 1, Jeevan Bharati Building, Connaught Place, New Delhi – 110 001.
The
Chief Executive Officer, National Payment Corporation of India, C-9,8th Floor,
RBI Premises, Bandra-Kurla Complex, Bandra (East), Mumbai-400 051,
FAQ updated on
30/04/2012
Source :
http://www.rbi.org.in
SAPOST
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